MORGAN STANLEY: Japan Has Changed The Game, And Now There Really Could Be A Currency War

The 'currency wars' meme continues to spread. To refresh, what this phrase means is countries are trying to weaken their currencies to boost exports. The phrase came about in 2010, when the Brazilian finance minister said that the Fed's QEII program was the start of a currency war. In a new note out, Morgan Stanley's Manoj Pradhan argues that there wasn't a currency war then... but that there might be one now. It starts out with a classic line. Andy Warhol famously said “In the future, everyone will be world-famous for 15 minutes”. Guido Mantega, Brazil’s finance minister, has clearly outperformed that benchmark. His concern in 2010 that the Fed was starting a “currency war”, using QE to weaken the US dollar against EM currencies, resonated with many in the emerging world and many in developed economies too. Pradhan goes onto argue that Mantega was wrong. QE was about defeating deflation and boosting asset prices. It was not about weakening the dollar. But while there might not have been a currency war in 2010, there might be one today, thanks to Japan. Japanese policy has changed the game: Japan’s policy-makers now want to end deflation and reinvigorate investment. Given the export-orientation of Japan’s economy, the role of the yen is likely to be much stronger for Japan than the dollar is for the US economy. This creates the risk of bringing into the fray the one, all-important element that was missing before – competitive depreciation. Any further monetary expansion by a major central bank may now prompt Japan’s policy-makers to take retaliatory action to weaken the yen. If they do, EM currency appreciation would be collateral damage. Already we've seen German leaders complain about Japanese monetary policy, which is a sign that they're irritated by the effects of a rival exporter weakening its currency so much. Meanwhile, the Euro surges, as the ECB sits idly by. Will the ECB switch back into easing mode to counter? Please follow Money Game on Twitter and Facebook.Join the conversation about this story »

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There's been lots of chatter about currency wars. This is the idea that central banks around the world will do whatever they can to weaken their local currency against others in an effort to make their exports more competitive.

LONDON: The global currency war entered a new and critical phase on Tuesday as China's surprise devaluation threatened to unleash a wave of competitive devaluations and keep monetary policy around the world looser for longer - perhaps even forcing the US Federal Reserve to delay or slow its expected rate rise cycle. 'Currency wars', a phrase used by Brazil's former finance minister Guido Mantega in 2010 to describe how competing countries explicitly or implicitly weaken their exchange rates to boost exports and gain trade advantage, have intensified in recent years.

LONDON: The global currency war entered a new and critical phase on Tuesday as China's surprise devaluation threatened to unleash a wave of competitive devaluations and keep monetary policy around the world looser for longer - perhaps even forcing the US Federal Reserve to delay or slow its expected rate rise cycle. 'Currency wars', a phrase used by Brazil's former finance minister Guido Mantega in 2010 to describe how competing countries explicitly or implicitly weaken their exchange rates to boost exports and gain trade advantage, have intensified in recent years.

File this story in the category of "be careful what you wish for, you just may get it".I am talking about Brazil, more specifically, Brazil's currency, the Real. Let's also investigate comments made by former finance minister Guido Mantega about the Real.BRL vs. US Dollar

LONDON — The global currency war entered a new and critical phase on Tuesday as China’s surprise devaluation threatened to unleash a wave of competitive devaluations and keep monetary policy around the world looser for longer – perhaps even forcing the U.S. Federal Reserve to delay or slow its expected rate rise cycle.

Today we are fortunate to present a guest contribution written by Marcos Chamon, Senior Economist in the Research Department of the International Monetary Fund, and Márcio Garcia, Associate Professor of Economics at PUC-Rio. The views expressed in this blog are solely those of the authors and do not necessarily represent the views of the IMF, its management, nor its Executive Board.

In September 2010, Guido Mantega coined the phrase "currency war" as he proclaimed the world's central bank's FX interventions were dangerous for citizens' purchasing power and would lead to a vicious circle of competitive devaluations. In March, Mantega unleashed a mini-war by taxing foreign borrowings and threatening capital controls. But this week, after the BRL devalued over 26% since March as Fed Taper talk and EM capital flight takes hold

The flareup in Brazil erupted in violence overnight as millions protested corruption, inflation, bus fares and a seemingly growing list of items.
Bloomberg reports Brazilian Revolt Claims First Fatality as Violence Erupts.
Brazil’s swelling street rebellion claimed its second fatality in the largest and most violent protests yet, as 1 million demonstrators rallied for better public services and an end to corruption.

The basic concept of "currency wars" is that countries are all trying to weaken their currencies to boost exports. "Wars" is an overly dramatic word to use, but countries to complain about other countries engaging in currency weakening, and it does make for a good soundbite.

Every once in a while, since the economic crisis started, the phrase "currency wars" pops up. It just means central banks trying to weaken their currencies (to make their countries more competitive) and other countries complaining about said weakening. It's not really that weird or that war-like.